Carney sees need for summer stimulus after Brexit shock

[LONDON] Bank of England Governor Mark Carney said the central bank would probably need to pump more stimulus into Britain's economy over the summer after the shock of last week's decision by voters to leave the European Union. "In my view, and I am not prejudging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer," he said in a speech on Thursday.

Mr Carney, who has previously warned of a possible recession in Britain if it chose to leave the EU, said the BoE's Monetary Policy Committee would announce an initial assessment of the situation on July 14, after its next scheduled meeting.

That would be followed by a full assessment when the Bank updates its forecasts for the economy on Aug 4. "In August, we will also discuss further the range of instruments at our disposal," Mr Carney said.

Investors already largely expect the Bank to cut interest rates over the summer, taking them below their already record low of 0.5 per cent to possibly as low as zero.

They also think the BoE might ramp up its bond-buying programme under which it amassed a stockpile of £375 billion worth of government debt after the financial crisis.

The yield on 10-year British government bonds fell below 1 per cent for the first time earlier this week and was trading at close to that level earlier on Thursday.

Sterling fell to a 31-year low against the dollar on Monday but remains down about 10 per cent compared with before the referendum. Investors face an uncertain political outlook after Prime Minister David Cameron said he would resign after losing the vote, putting more emphasis on the BoE's response.

In his speech, Mr Carney cautioned that there were limits to how low the Bank could cut rates. "As we have seen elsewhere, if interest rates are too low or negative, the hit to bank profitability could perversely reduce credit availability or even increase its overall price," he said.

Mr Carney said contingency measures drawn up by the Bank and Britain's financial ministry for the immediate market shocks caused by the referendum were "working well." He also said the Bank had "a host of other measures and policies" to steer the economy and the country's vast banking sector through the shock triggered by the referendum result.

REUTERS

For more coverage of the EU referendum, visit bt.sg/BrexiT